Ford abandons '09 profit goal, recovery sputters

By Kevin Krolicki and David Bailey

DETROIT (Reuters) - Ford Motor Co (F.N) warned on Thursday that it no longer expected to meet a key target of returning to profitability in 2009 and would cut production through this year in response to a slumping U.S. auto market.

The news sent Ford shares down 8 percent as investors came to terms with the first major setback for the No. 2 U.S. automaker since Chief Executive Alan Mulally was brought in to steer its turnaround in 2006.

Analysts said the weaker outlook showed Ford's recent gains had been overrun by a weak U.S. economy, spiraling prices for oil and other commodities and an accelerating consumer shift from larger trucks and sport utility vehicles.

"This is an embrace of reality," said Pete Hastings, a corporate bond analyst at Morgan Keegan. "The market's very soft, and they can't get the cost savings they need."

Ford's warning marked the second time in 20 months that the automaker has had to scale back expectations for its return to profitability, the ultimate milestone under restructuring plans first launched seven years ago.

Just before Mulally was hired from Boeing Co (BA.N), Ford had been projecting a profit in 2008 but the company pushed that forecast back by a year when it announced a stepped-up restructuring plan and suspended dividends in September 2006.

Ford, which has lost more than $15 billion over the past two years, has spun off luxury brands Aston Martin, Jaguar and Land Rover to raise cash. It has also bought out more than 38,000 union-represented U.S. workers, slashed cut-rate sales to car rental agencies and pushed to unify its global vehicle development in an effort to cut costs and boost margins.

Analysts had seen Ford as running ahead of its domestic rivals General Motors Corp (GM.N) and Chrysler LLC after it posted a surprise $100-million first quarter profit.

But Thursday's announcement, which followed similar profit warnings from Japan's Toyota Motor Corp (7203.T) and Nissan Motor Co (7201.T), showed the deepening pressure across an industry strained by overcapacity, analysts said.

"I don't think this is a surprise to anyone given the economic conditions. The question everyone has is what is the depth and the timetable of the recessionary conditions," said Fitch Ratings managing director Mark Oline.

Mulally said the No. 2 U.S. automaker now expected to be "about break-even" in 2009 before taxes and special items.

"Unless there is a fairly rapid turnaround in U.S. business conditions, which we are not anticipating, it now looks like it will take longer than expected to achieve our North American automotive profitability goal," said Mulally.

Mulally said Ford would detail steps to cut more jobs and push faster into the market for smaller and more fuel-efficient cars in July.

The head of the Canadian Auto Workers union, Buzz Hargrove, told Reuters he expected about 300 job cuts at a Ford engine plant in Windsor, Ontario. Just over two weeks ago the union and Ford concluded a new three-year contract.

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